LONDON, Aug 8 (IFR) - Euronext has signed an agreement with LCH for continued provision of derivatives and commodities clearing services by the London-based clearinghouse.
The deal ends a planned migration of clearing services to ICE Clear Netherlands, which was agreed earlier this year. Euronext struck a derivatives clearing deal with InterContinental Exchange in April, after its bid to acquire LCH’s Paris-based clearing arm, LCH SA, was thwarted by the failed merger between LCH’s parent, LSE Group, and Deutsche Boerse.
Euronext’s long-standing clearing agreement with LCH was due to expire in December 2018 and will now continue for another 10 years following termination of the short-lived deal with ICE.
As part of the agreement, which is expected to be signed in the fourth quarter, Euronext will swap its 2.3% stake in LCH Group for an 11.1% stake in LCH SA, resulting in a net capital gain of around €24m. LCH’s Paris arm houses credit default swap clearinghouse CDSClear and provides clearing services across cash equities, derivatives, fixed income and triparty repos.
The deal provides Euronext with pre-emption rights in the event of a sale of 50% or more of the shares in the Paris clearinghouse by LCH Group.
“Euronext’s transfer of its shareholding in LCH Group to LCH SA will further deepen our long-standing relationship,” said Christophe Henom, CEO of LCH SA. “The agreement will provide certainty for existing clearing members and clients and we look forward to working with Euronext and other trading venues to develop LCH’s clearing franchise, developing new products and reinforcing the diversified range of products cleared across asset classes including equities, CDS and repos.”
Euronext will remain on the board of LCH SA and nominate one representative to the clearinghouse’s risk committee. The exchange group will step down from the wider LCH board on completion of the share swap.
According to Stephane Boujnah, CEO and chairman of the board at Euronext, the agreement provides Euronext with “a sizeable ownership position in a leading multi-asset CCP based in the eurozone with strong positions in the fast-growing fixed income and CDS businesses.
“Our clients will benefit from a reduction in clearing fees, and the continuity of service avoids the cost and disruption associated with a migration.”
The agreement targets a cost reduction of 5%–15% for Euronext clients from January 2019, depending on specific products and services. The terminated ICE Clear agreement aimed to deliver a 15% reduction in costs through lower headline clearing fees, treasury management fees and capital efficiencies.
As part of the effort to deliver reduced costs, LCH is seeking operational efficiencies through the implementation of MillenniumIT clearing technology for listed derivatives, which will consolidate all of LCH’s post-trade cash equities and derivatives platforms.
“The implementation of MillenniumIT’s clearing technology will deliver a common technology and integrated solution for our clearing members and venue partners, enhancing resiliency and efficiency for the group,” said Suneel Bakhshi, CEO of LCH Group.
A spokesperson for InterContinental Exchange declined to comment on the termination of the service agreement. (Reporting by Helen Bartholomew)